French Economy's Growth in Second Quarter Boosts Macron After Setbacks

By William Horobin Features Dow Jones Newswires

The French economy maintained firm growth in the second quarter, statistics showed Friday, giving President Emmanuel Macron a shot in the arm as he embarks upon contentious plans to rewrite labor laws and cut public spending.

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Economic output rose 0.5% in the second quarter from the first, keeping up with the above-average pace the French economy set in the previous two quarters, statistics agency Insee said. The figures were in line with economist expectations.

Firming growth cushions Mr. Macron as he attempts to address France's perennial problems of gaping deficits and high unemployment, which have left its economy trailing Germany's and other European peers.

The 39-year-old president has prescribed deep spending cuts to close the deficit and a loosening of labor laws to encourage businesses to hire. Stronger growth could help smooth the possible disruption to the job market from the changes, and support incomes and employment as the state tightens its belt.

"It's not the worst moment for these policies because we are in a positive phase in the economic cycle," said Xavier Timbeau, an economist at publicly funded economic observatory OFCE.

Friday's gross domestic product figures -- the first concerning a period during Mr. Macron's presidency -- showed a strong rise in exports after a contraction in the first three months of the year. Consumer spending picked up, rising 0.3% quarter-on-quarter after 0.1% in the first quarter. Business investment continued to grow, although at a slower rate than the start of the year when companies rushed to make use of expiring tax incentives.

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The strength of the underlying economy is a relief for the government after Mr. Macron's economic plans recently ran into obstacles.

In June, a report by the state auditor revealed a wider-than-expected deficit, pushing the government to make additional spending cuts. The cuts sparked a public row with the army that ended with the resignation of France's top military commander.

Mr. Macron's approval ratings have dropped since he came to power, reaching 54% according to a survey last week by Ifop after 64% in June.

Still, consumer and business surveys have improved to multiyear highs since Mr. Macron's election, raising hopes for a stronger economic rebound. France is also benefiting from the European Central Bank's record low rates and a vast asset purchase program, which the Bank of France says has boosted growth and jobs.

Business leaders say Mr. Macron must now deliver on labor overhauls to sustain the economic uptick and bring down the 9.6% unemployment rate.

The chief executive of electrical equipment maker Schneider Electric Jean-Pascal Tricoire said his company had a relatively flat first half in its home market as it is waiting for renewed confidence after Mr. Macron's election in May to translate into sales. Only a small fraction of the company's business is in France, but it is exposed to a broad cross section of industrial clients.

"France is doing better in terms of morale after the election; now reforms need to happen to generate investment and business development," Mr. Tricoire said.

Mr. Macron's government is currently consulting with labor and business unions to prepare decrees that would make sweeping changes to labor laws as part of a fast-track parliamentary procedure. The government aims to give businesses greater latitude to work around rules set by unions and encourage hiring by limiting the costs and legal uncertainties of laying off staff

Some businesses are concerned Mr. Macron will bow to resistance from labor unions and water down the plans. François Asselin, the head of business lobby CPME that is negotiating with the government on behalf of small companies, said that even as the economy picks up pace many of the executives he represents could still avoid hiring.

"If the government really reforms the labor code in a courageous, significant way, there will be a positive impact," Mr. Asselin said.

Write to William Horobin at William.Horobin@wsj.com

(END) Dow Jones Newswires

July 28, 2017 01:44 ET (05:44 GMT)